Former bailout watchdogs criticize AIG tax break

Reporting from Washington — American International Group Inc.'s recent quarterly profit of nearly $20 billion was almost entirely due to an inappropriate tax break, four former members of the watchdog panel that oversaw the financial crisis bailouts said.

The break allowed the government-owned insurance company to count its past net operating losses against future taxes. That amounts to a "stealth bailout" of a company that received about $125 billion in taxpayer money, said the former appointees to the Congressional Oversight Panel for the $700-billion Troubled Asset Relief Program.

"It's been more than three years since AIG lost its reckless bet on mortgage-backed securities, yet today AIG continues to get special tax breaks that last quarter accounted for 90% of its profits," the panel's former chairwoman, Elizabeth Warren, told reporters Monday on a conference call. "We think it's time for Congress to end the special tax break."

Warren, who is running as a Democrat for the U.S. Senate in Massachusetts, was joined by former panel members Damon Silvers, Mark McWatters and Kenneth Troske in saying the tax break gives the illusion of significant profitability at the company.

The profits benefit AIG's private stockholders and allow the company to pay higher executive compensation, the TARP panel members said.

"By doing it this way, Silvers said, "billions of dollars leak out to the benefit of private parties, who really should not be benefiting from public policy in this way."

The oversight panel was shut down last April, as set forth in the bailout law, but the panel members said they had paid close attention to the AIG bailout. Last month, AIG reported a $19.8-billion profit for the final three months of 2011.

Of that profit, $17.7 billion came from the break on earlier operating losses stemming from AIG's near collapse in 2008 because of the complex insurance coverage it sold for mortgage-backed securities.

Companies that file for bankruptcy or are acquired by other firms normally are prevented from using their net operating losses to offset future bills. But during the bailouts of the financial crisis, the Treasury decided the rule would not apply to private companies acquired by the government. In addition to AIG, that also included General Motors Corp.

The panel members said no company should be getting that tax break, but focused on AIG because they said the break was such a major factor in its recent quarterly profit.

AIG said that after-tax operating income for the fourth quarter was only $1.6 billion.